Fed Has Eye on New Housing Crisis

In the release of the Federal Reserve’s minutes from the September meeting, the members of the Federal Open Markets Committee spoke about the various aspects of the US economy and their progression since the July meeting.

Among the items discussed were inflation, the labor market, and notably, the US housing market.

The FOMC said that the housing market looks a bit weak, saying “real residential investment spending continued to be soft in the third quarter.” The reason? The Fed said that at least part of the issue is the so-called “new housing crisis.”

Here’s how the FOMC characterized the problem (emphasis added):

“However, the sluggishness in the housing sector appeared to have continued into the third quarter. A couple of participants pointed to limited availability of lots and a shortage of skilled labor as restraining residential construction activity in their Districts; in one District, constraints on the supply of new homes for sale were expected to boost spending on home improvements and offset some of the drag from the slowing in new construction.”

Put another way, the supply of new and existing homes has declined to the point that it is not able to keep up with new demand from younger people looking for a new home. This in turn drives the price of new homes up, pricing out first-time home buyers and resulted in the sluggish recovery for the housing market.

While it is unclear what impact, if any, this had on the Fed’s assessment of the US economy, at least we know the troubles facing new home buyers have made it all the way to one of the most powerful economic institutions in the world.